Here Is the Only Sure Way to Create a Billion-Dollar Internet Company

 
 
 

In a blog post for Forbes, James Slavet of Greylock Ventures explains that there are currently only about 50 U.S. Internet companies that have ever been acquired or are currently worth $1 billion or more in the past two decades. None of them, by the way, are any of his investments, which include Redfin and One Kings Lane.

But that didn’t stop him from analyzing the past successes and formulating some strong advice on the “surest way to create a $1 billion Internet company.”

He first notes that successful social platforms are few and far between, explaining that “a social platform can be a beautiful business, but only if it crosses the threshold to dominate a category.”

As we suggested earlier, future social networks might benefit from capitalizing on the “negative space” social media, like Whisper and Snapchat — letting people share all the stuff that’s too personal or even too weird for their Facebook accounts. But if you’re entering traditional social media, don’t expect to beat the big boys at their own game.

In terms of “media, search and payments,” Slavet is pessimistic: the only independent advertising networks to be worth more than $1 billion are Doubleclick, Aquantive and Valueclick, and you’ve already heard of all the media and search giants worth $1 billion — YouTube, Pandora, Hulu, Google, AOL and Yahoo. In ‘payments’ you’ve got Square and Paypal, but basically, the hits here are few and far between.

This brings us to Slavet’s core thesis: that a digital transactions business is the surest way to create a billion-dollar Internet company. More than two-thirds of the publicly traded U.S. Internet companies are digital transaction firms, like Priceline, Expedia, Amazon, Netflix and eBay. Amongst these, Amazon is one of the few which literally deals in physical goods — the rest simply facilitate commerce, connecting buyers and sellers and building marketplace platforms.

Slavet also explains that the shift to mobile will only help digital transaction services, as consumers will be able to research and purchase even faster, essentially making more impulse purchases.